Why Kids Need to Understand the Basics of Investing

When Dennis Genord talks about investing with his daughter, he says the fifth-grader already shows a grasp of the basics of shareholding: “She understands she can be a part owner of her favorite restaurant or clothing store.” But Genord’s daughter is not a typical tween. Her dad is the Director of Education and Chapter Relations for BetterInvesting, the non-profit also known as the National Association of Investors Corp.

Most kids don’t have an in-house financial educator, and only four states require at least a semester’s worth of financial education in their school curricula. A quarter of U.S. high-schoolers don’t think they will be able handle their own finances when they graduate, according to a survey from EverFi, an education technology company. 44% of kids polled are stressed about money and 63% think their parents should teach them about it.

With more employers passing on the responsibility of retirement savings to their employees through 401(k) plans and similar accounts, it’s crucial to teach kids about investing. Experts say the next generation will face a retirement-savings crunch; they need to get started saving early, and they have to learn how. “In this age, it’s critical,” says Genord.

If you empower kids with information they can take their future under control.

Don’t worry that your financial knowledge is not up to par; according to EverFi’s research, only 26% of parents feel prepared to handle their kids’ financial education, says Chief Operating Officer Tammy Wincup. “I know it’s difficult for parents to do when they’re bashful about not knowing enough,” she says. But she adds: “You don’t have to teach them the complexity of Wall Street to pique their interest.”

There are many resources online to help parents teach kids about money, including investing. Citi has a financial education website with lesson plans to teach kids in grades 6-8 the basic concepts of managing money, including investment plans.

Some concepts, such as the power of compounding returns and opportunity costs, can be taught early on using hands-on props, says Nan J. Morrison, CEO and President of the Council for Economic Education. For example, jelly beans can help teach compounding to kids as early as the second grade. “Our hope is that by they time students are ready to open up a 401(k) plan—and retirement still seems far away—they’ll remember the jelly bean lesson!” says Morrison.

While experts say it’s never too early to start, they point to the high school years as the time to introduce the more sophisticated concepts of the financial markets. According to the Council’s National Standards for Financial Literacy, eighth-graders should be able to describe the different financial assets, and high-school seniors should be able to describe how the prices of financial investments change based on news affecting a company’s future profits. EverFi’s financial education platform introduces stocks, bonds, and credit scores in grades 9 and 10, says Wincup.

Kids’ eyes can glaze over if you start reading the financial pages to them, so try some hands-on lessons, says Genord. “Reading isn’t everything when it comes to investing. It’s taking action, it’s doing. “That’s where the real learning takes place.”

For example, BetterInvesting chapters have offered programs where adults can buy kids a share of stock as a gift, so they can get involved actively. Or you can set up custodial accounts in your kids’ names to save for their future and discuss their performance with them. “When a kid gets a statement from a broker that’s in their name, they can see something that’s theirs,” says Genord. “It really means a lot to a child.”

You can also share your statements from your 401(k) or 529 college-savings accounts, if you have them. “It’s a great opportunity to talk about a vehicle of savings or investing that directly relates to where that student will go in the future,” says Wincup. Don’t be afraid of stressing the kids out by sharing information about your finances, say experts. On the contrary, it empowers kids to know about these things, says Wincup. She compares it to talking to kids about health and nutrition.

“If you empower kids with information they can take their future under control,” says Wincup, a mother of three. “I think we have an opportunity … if we can empower students to think about their financial future as they think about their educational future.”